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Russell Rhoads, CFA

Russell Rhoads, CFA, is Director, Product Advancement, Global Derivatives at Cboe Global Markets. His career before joining Cboe included positions at a variety of firms including Highland Capital Management, Caldwell & Orkin Investment Counsel, Balyasny Asset Management, and Millennium Management. He is a financial author and editor having contributed to multiple magazines and edited several books for Wiley publishing. He is the author of six market related books including Trading VIX Derivatives, Option Spread Trading, Trading Weekly Options, and Options Strategies for Advisors and Institutions. He authored material to be included in Level II of the CFA program and material for the CMT designation. In addition to his duties at Cboe, he is an adjunct instructor at Loyola University. He is a double graduate of the University of Memphis with a BBA ('92) and an MS ('94) in Finance and also received a Master's Certificate in Financial Engineering from the Illinois Tech in 2003. Russell is currently pursuing a PhD from Oklahoma State University with an expected graduation date in the Summer of 2018.

Once a month I leave CBOE for a couple of days and turn into a student attending a residency at Oklahoma State. I do my very best to leave the markets behind and focus on my studies. I did a pretty good job of tuning out what was going on toward the end of the week. This resulted in me being surprised that the Russell 1000 (RUI) gained almost 1% on a week over week basis with the Russell 2000 rising just over a half of a percent. Both are lower on the year, with large[...]

I’m depending on my aging mental capacity in lieu of spending the time to go through the last four years of VIX recap blogs for the following statement. I have no recollection of a shift in the VIX term structure curve that replicates what shows up below. VIX lost value on the week, while all the futures contracts moved higher. Last Friday, spot VIX ran up quickly at the end of the day, but the futures remained at lower levels. To get back to a more ‘normal’[...]

Under no circumstances does the week over week change in the VXST – VIX – VXV – VXMT curve tell the story of last week. There’s something worth noting, but last week is not done any justice at all if a line showing Monday closing prices is not included, therefore it is.
What strikes me as noteworthy about the week over week change in something that is very subtle on the term structure chart that appears above. Note that VXV and VXMT actually rose last[...]

Beginning back in the spring there was a very large 1 x 2 VIX Call spread that was rolled from month to month for several months. With the excess volatility it appears the trade was exited earlier this week. But that is apparently not the end of the story….
Yesterday there was a buyer of about 92,000 VIX Oct 15 Calls for 8.00 who sold about 184,000 VIX Oct 21 Calls at 4.80 which boils down to a credit of 1.60 per spread. The payoff, if held to October expiration, appears below[...]

The second quarter earnings season is pretty much behind us and there are only five companies releasing numbers next week. All the history below is based on three years of earnings reactions with the exception of AMBA which falls one quarter short of the three year threshold.

Tomorrow morning we will get the settlement print for the August 26th VIX Weeklys Futures contract. You never know how a product is going to trade until it is set free upon the marketplace. The assumption with respect to VIX Weeklys Futures was that the nearest expiring contract would closely track price action in spot VIX. The past couple of days has been a heck of a time to test this out, but so far it appears the expected price behavior of the nearest expiring future[...]

First, a quick discussion of the VIX quotes from early today. Just as the equity market opened the S&P 500 E-mini futures went limit down. Market makers in the SPX pit at CBOE use the futures for hedging purposes so it was difficult for the traders in the pit to asses where the equity market was going and this created a pause is quoting. Following the limit down situation there was spotty quoting in SPX and SPXW options so VIX values were not being disseminated. The VIX[...]

Small cap stocks held up (generous term here) well versus large cap stocks last week. The Russell 2000 (RUT) was down 4.61% while the large cap focused Russell 1000 (RUI) lost 5.73%. The drop for RUI was the biggest one week lost since mid-September 2011. For the year RUT and RUI are down 3.98% and 3.89% respectively. I’m going to say that’s a tie with just over four months to go.
With RUT holding up relative to RUI small cap risk, as measured by the CBOE Russell[...]

VIX more than doubled last week in what was the biggest week over week percent change for VIX in history. Specifically VIX rose 118% from Friday to Friday. This past week was August settlement week for VIX futures and options. In the past this would mean that the next expiring future would have weeks of trading left. However, we now have VIX Weeklys trading at the CBOE Futures Exchange. More on that in a minute.
The curve shifted higher and into backwardation last week. The cheapest future[...]

The S&P 500 was down 5.77% and S&P 500 related volatility indexes did exactly what traders would expect. They shot higher and the curve became as inverted as it has been in the last three to four years. I’m pretty sure the last time the VXST – VIX – VXV – VXMT curve was in this sort of backwardation was in August 2011.
For the record VXST was up 231%, VIX rose 118%, VXV gained 51%, and VXMT was higher by about 34% for the week. Before the week began, XIV[...]

Target (TGT) reported earnings before the open this week on Wednesday the 19th. It appears a trader who is long term bullish, but short term neutral came into the market Tuesday and expressed this outlook using a diagonal spread. Specifically they purchased TGT Sep 18th 82.50 Calls for 1.18 and sold the same number of TGT Aug 21st 82.00 Calls for 0.68 and a net cost of 0.50. All this was done when TGT was trading around 80.35. The payout for August 21st expiration appears below and an[...]

Things are starting to slow down with respect to the earnings calendar, but there are still plenty of trading opportunities next week. As always the numbers below summarize reactions to earnings over the last 12 quarters with the exception of WDAY which only has 11 quarters of history to work with.

After what seemed like a long wait for some anxious traders, options on Shake Shack (SHAK) commenced trading last week. The chart below is a depiction of weekly price action in SHAK since the company went public early this year. I can see why traders were clamoring for the listing of SHAK options.
Something in the SHAK option arena that has gotten a lot of attention is what appears to be a breakdown in put-call parity. Using options, a trader can create a synthetic long position in SHAK[...]

Author's note - over the weekend I discussed the price behavior of VIX futures and options into monthly settlement. I start this blog off restating the idea behind this sort of trade and then follow up with the outcome based on Tuesday closing prices and today's August VIX Settlement of 14.78.
The Backstory
Something I have been watching for some time is the futures pricing relative to spot VIX the Friday before settlement. The spread, when very little is going on, is usually about a[...]

Large cap stocks eked out a win last week with the Russell 1000 (RUI) rising 0.69% versus a 0.48% gain for the Russell 2000 (RUT). The chart below indexes the performance for RUI and RUT to 100 at the beginning of 2015 for an apples to apples comparison.
Despite RUT and RUI basically performing in line with each other, large cap risk, as indicated by index option pricing, dropped a bit relative to small cap risk. The chart below displays the percent premium of the CBOE Russell 2000 Volatility[...]

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